Low-Wage Workers Climb the Earnings Ladder

Pandemic drives poorer and less-educated employees into better jobs, research suggests

By Justin Lahart of The WSJ. Excerpts:

"When the Covid crisis struck, economists worried that poorer workers might suffer a permanent setback. With the broad job losses the pandemic set off concentrated in low-wage industries, the earnings gap between the rich and the poor seemed likely to only widen.

It has narrowed instead, with wage growth among lower-paid and less-educated workers outstripping wage growth among the better-paid and more highly educated. In a paper posted to the National Bureau of Economic Research’s website on Monday, economists David Autor of the Massachusetts Institute of Technology, and Annie McGrew and Arindrajit Dube of the University of Massachusetts Amherst explore how this came about."

"Labor Department data show that for a worker at the upper limit of the bottom 10% by income, typical weekly earnings in the fourth quarter were 22.3% higher than in the fourth quarter of 2019, outpacing the 15.7% gain in consumer prices over the same period by the Labor Department’s inflation measure. But for a worker at the 90th percentile, earnings grew 13.3%. The data further show median weekly earnings for workers with just a high-school diploma rose 17.1% over the same period, while for workers with at least a bachelor’s degree they grew 11.9%."

"among workers with a high-school education or less, it is the young—those under 40—who have seen the most significant wage gains. That appears to be driven by young workers’ higher tendency to switch jobs."

"Part of what might have driven the wage gains is that the onset of the pandemic unstuck many less-educated workers from jobs that paid worse than they might have gotten elsewhere. The job losses among workers age 25 and older with a high-school education or less were extreme, with employment levels falling more than one-fifth from February 2020 to April 2020. But when the job market came roaring back, many of these workers didn’t simply go back to their old jobs, but to ones with higher pay."

"the underlying dynamic appears to go beyond a simple model where rising demand relative to the supply of workers raises wages. Rather, it is emblematic of what is called a job-ladder model, where in a tighter labor market workers get more contacts from potential employers, providing the less-well-paid with more opportunities to switch to better paying jobs."

"with the U.S. facing a demographic crunch that will limit the availability of younger workers in the years ahead, what has happened since early in the pandemic is “a premonition of how the labor market will be evolving in the next decade,” he says."